BACKGROUNDThe assessee filed a return of income for the assessment year 1968-69 but failed to pay self-assessment tax within the prescribed time under Section 140A(1) of the Income Tax Act. The Income Tax Officer imposed penalty under Section 140A(3) for non-payment of self-assessment tax. The Appellate Assistant Commissioner reduced the penalty on appeal. In second appeal, the Bombay Income Tax Tribunal took note of the Madras High Court decision in A.M. Sali Maricar which had struck down Section 140A(3) as unconstitutional being violative of Article 19(1)(f) of the Constitution, and cancelled the penalty order on that basis. The Revenue challenged this before the Bombay High Court by way of a reference question. CRUCIAL COURT OBSERVATIONS (Verbatim)"It is the settled position in law, in view of the decision of the Supreme Court in K.S. Venkataraman and Co. (P.) Ltd. v. State of Madras, that an authority created by a statute cannot question the vires of that statute or any of the provisions thereof whereunder it functions.""It should not be overlooked that the Income-tax Act is an All-India statute and if an Income-tax Tribunal in Madras, in view of the decision of the Madras High Court, has to proceed on the footing that section 140A(3) was non-existent, the order of penalty thereunder cannot be imposed by the authority under the Act. Until contrary decision is given by any other competent High Court, which is binding on a Tribunal in the State of Bombay, it has to proceed on the footing that the law declared by the High Court, though of another State, is the final law of the land.""What the Tribunal really did was that in view of the law pronounced by the Madras High Court it proceeded on the footing that section 140A(3) was non-existent and so the order of penalty passed thereunder cannot be sustained.""When the Tribunal set aside the order of penalty it did not go into the question of intra vires or ultra vires. It did not go into the question of constitutionality of section 140A(3). That section was already declared ultra vires by a competent High Court in the country and an authority like an Income-tax Tribunal acting anywhere in the country has to respect the law laid down by the High Court, though of a different State, so long as there is no contrary decision of any other High Court on that question." FINAL VERDICT The Bombay High Court answered the reference question in the negative and in favour of the assessee, holding that the Tribunal was correct in setting aside the penalty order and was not required to independently go into the constitutionality of Section 140A(3), since it was duty-bound to follow the Madras High Court's declaration that the section was non-existent, there being no contrary High Court decision at the relevant time. Costs awarded to the assessee. 👍

Background.  Kanakia Supremo Construction Private Limited merged into the petitioner under an order of the Bombay High Court dated 29.11.2016, with an appointed date of 01.04.2015, and stood dissolved and struck off the records of the Registrar of Companies. Its service tax registration was automatically migrated to GST under Section 139 without intimation. Despite the petitioner informing the department in 2019 that the company had ceased to exist, a show cause notice dated 25.06.2025 under Section 74 and an Order-in-Original dated 31.12.2025 were issued in the dissolved company’s name.Observations of the Court.  A valid show cause notice is the foundation of any tax proceeding. The department having been repeatedly informed of the amalgamation, the defect was a jurisdictional error and not a mere procedural oversight. The Court applied Maruti Suzuki India Ltd., Reliance Industries Limited v. P. L. Roongta and its own decision in Vodafone Idea Ltd., and rejected the contention that Section 87 could validate the initiation or continuation of proceedings against an entity that had ceased to exist.It accordingly held that any show cause notice issued to an amalgamating company after it had ceased to exist pursuant to its merger, based on the scheme of amalgamation, would be without jurisdiction, and that any proceeding initiated thereunder would be null and void.Final verdict.  The writ petition was allowed and the Order-in-Original dated 31.12.2025 was set aside. The Court clarified that relief was granted solely on the ground that proceedings were initiated on a notice issued to a non-existent company, that it had expressed no opinion on the merits of the claims and counter-claims, and that its order would not stand in the way of the authorities initiating proceedings in accordance with law for recovery of unpaid GST, interest and penalty from the petitioner if otherwise permissible.

BACKGROUNDThe petitioner, an individual employee, was subjected to imposition of penalty by the Revenue authorities under the GST Act. The petitioner challenged this imposition by way of a writ petition before the Bombay High Court, Nagpur Bench. The petitioner relied upon a binding precedent already settled by the Bombay High Court and confirmed by the Supreme Court, wherein an identical issue — of fastening GST penalty liability on an employee of a company under Section 122(1-A) and Section 137 of the CGST Act — had been conclusively decided in favour of the employee. CRUCIAL FACTSThe petitioner submitted before the Court that the issue raised in the present writ petition is squarely covered by the judgment of the Bombay High Court in Shantanu Sanjay Hundekari vs. Union of India, which was subsequently confirmed by the Supreme Court in Union of India vs. Shantanu Sanjay Hundekari. In that precedent case, the Revenue had sought recovery of a massive demand from a person who was merely an employee of the company. The Bombay High Court had quashed the show cause notice against the employee holding that the basic jurisdictional requirements for invoking Section 74 of the CGST Act to invoke Section 122(1-A) and Section 137 against the petitioner-employee were not attracted. The Supreme Court, on appeal by Revenue, confirmed the Bombay High Court's ruling and recorded that the employee could not have been fastened with the company's liability. Counsel for the respondents in the present case sought time to seek instructions on the applicability of the said Supreme Court ruling. COURT OBSERVATIONS (Verbatim — Crucial)Bombay HC in Shantanu Hundekari (as reproduced and relied upon by the present Court):"For the aforesaid reasons, it is clear from the relevant contents of the show cause notice that the basic jurisdictional requirements/ingredients, are nor attracted for issuance of the show cause notice under Section 74 of the CGST Act so as to inter alia invoke Section 122(1-A) and Section 137 against the petitioner. Even otherwise, it is ill-conceivable to read and recognize into the provisions of Section 122 and Section 137, of the CGST Act any principle of vicarious liability being attracted. There could be none. Thus, Respondent no. 3 clearly lacks jurisdiction to adjudicate the show cause notice in its applicability to the petitioner. Thus qua the petitioner, the impugned show cause notice is rendered bad and illegal, deserving it to be quashed and set aside.""The foregoing discussion would also lead us to conclude that it is highly unconscionable and disproportionate for the concerned officer of the Revenue to demand from the petitioner an amount of Rs.3731 crores, which in fact is clearly alleged to be the liability of Maersk, as the contents of the show cause notice itself would demonstrate. The petitioner would not be incorrect in contending that the purpose of issuing the show cause notice to the petitioner who is merely an employee, was designed to threaten and pressurize the petitioner."Supreme Court in Union of India vs. Shantanu Sanjay Hundekari (as reproduced and relied upon by the present Court):"The issue before the High Court was one relating to the interpretation of Section 122(1-A) and Section 137 of the GST Act.""The High Court after assigning cogent reasons took the view that the respondent-herein was merely an employee of the Company and he could not have been fastened with the liability of Rs.3731 Crore."Present Court's Order:"We have gone through the said observations of the Hon'ble Apex Court.""In the meantime, no coercive action shall be taken by the Respondents to recover the amount towards the penalty till filing of the reply." FINAL VERDICTThe Court granted an interim stay on all coercive recovery action for penalty against the petitioner-employee. The matter is listed after Summer Vacation for further hearing. The Revenue counsel has been directed to seek instructions in view of the binding Supreme Court ruling.👍 THUMBS UP (In Favour of Assessee — Interim Protection Granted) 

BackgroundPursuant to an order of the NCLT dated 30 August 2018, Vodafone Mobile Services Ltd. and Vodafone India Limited merged with Idea Cellular Limited, resulting in the petitioner being the merged entity. The fact of the merger was intimated to the GST authorities at the time of amendment of the GST registration. Before the merger, one of the businesses of the amalgamating company was its tower business, which was transferred as a going concern on a slump-sale basis. The petitioner contended that the transfer of the entire business was not a supply in the course or furtherance of business and therefore was not declared in GST returns.Between March and July 2022, the DGGI sought documents from the petitioner. Thereafter, summons under Section 70 of the CGST Act were issued on 7 February 2024, followed by a show-cause notice dated 1 August 2024 demanding ₹363 crores under Section 74, along with penalty, on the ground that transfer of a going concern was an exempt supply and that ITC had been wrongly availed. Detailed replies were filed, but the impugned order dated 29 January 2025 was passed without considering the submissions concerning the merger.2. Court ObservationThe Court noted that the merger pursuant to the NCLT order was undisputed and that the GST authorities had been informed of the merger. The Court accepted the principle laid down in Principal Commissioner of Income Tax, New Delhi v. Maruti Suzuki India Ltd. that once an amalgamating entity ceases to exist pursuant to an approved scheme of amalgamation, proceedings initiated against that non-existent entity are void ab initio.The Court specifically examined Section 87 of the CGST Act and held that its provisions operate in relation to the intervening period between the effective date of merger and the date of the merger order, where transactions between the amalgamating companies have to be accounted for. Section 87 does not confer authority upon the Department to issue a show-cause notice against a non-existent entity after the merger. Post-merger, the amalgamating entity has no legal status and proceedings cannot be initiated against it.The Court therefore held that the ingredients of Section 87 could not be invoked to continue the proceedings contemplated by the show-cause notice. Since the show-cause notice itself was issued without jurisdiction, the proceedings were vitiated and void ab initio.3. Final VerdictThe Bombay High Court held that Section 87 of the CGST Act could not be invoked to continue the proceedings against the non-existent amalgamating entity. The show-cause notice dated 1 August 2024, having been issued without jurisdiction, and the proceedings arising from it, were held to be void ab initio.Accordingly, the Court held that the petition succeeded and was allowed in terms of prayer clause (a), thereby quashing the impugned order dated 29 January 2025.4. Cases Referred by CourtCaseCourtDate / CitationPrincipal Commissioner of Income Tax, New Delhi v. Maruti Suzuki India Ltd.Supreme Court of India[2019] 416 ITR 613; specific order date not stated in the PDFReliance Industries Limited v. P. L. RoongtaHigh Court of Bombay[2025] 479 ITR 770; specific order date not stated in the PDFHCL Infosystems Ltd. v. Commissioner of State Tax and AnotherHigh Court of Delhi2024 SCC OnLine Del 8287; specific order date not stated in the PDFThe Court relied particularly on Maruti Suzuki India Ltd. for the principle that proceedings initiated against an entity that had ceased to exist following amalgamation are void ab initio, and on Reliance Industries Ltd. v. P. L. Roongta for applying that principle to proceedings against a non-existent amalgamating entity.The Court also found support in HCL Infosystems Ltd. v. Commissioner of State Tax and Another, which interpreted Section 87 as preserving the tax treatment of transactions during the relevant period but not as authorising proceedings or an assessment against a non-existent amalgamating company.  

BackgroundThe batch of petitions involved common questions of fact and law concerning show-cause notices and pre-intimation notices issued by the department proposing action for blocking the petitioners' ITC. The reasons cited by the department varied, including allegations that suppliers were unregistered entities and that fraudulent ITC had been availed on the basis of bogus invoices without actual movement of goods or services.The petitioners challenged the departmental action as well as the vires of Section 16(2)(c) of the CGST Act, contending that the provision imposed an undue burden on recipients and was arbitrary, irrational and violative of Articles 14, 19(1)(g) and 300A of the Constitution.Court ObservationThe Court observed that the CGST Act and the Rules constitute a complete code governing the framework within which the department is required to act. While blocking of ITC has adverse consequences and affects the right of registered persons to carry on business, each matter must be examined on its own facts to determine whether the departmental action is based on tangible material and whether there is a rational basis for invoking the statutory machinery. The Court also observed that fake or bogus ITC cannot be countenanced under the law.The Court held that show-cause and pre-intimation notices have to be decided on the facts of each individual case and that collective adjudication on the merits of individual issues was not possible. It further held that although the validity of a statute can be challenged under Article 226 where the facts disclose legal injury, such a challenge in the present petitions was premature before adjudication of the show-cause notices.Final VerdictThe Court directed that where show-cause notices had been issued, the petitioners would be permitted to file their replies, if not already filed, within two weeks, after which the notices were to be adjudicated in accordance with law after considering all factual and legal contentions raised by the petitioners.For matters where only pre-show-cause intimations had been issued and objections had already been filed, the concerned authorities were directed to consider the objections expeditiously and provide an opportunity of hearing, deciding whether a show-cause notice was required or the proceedings should be dropped, within eight weeks. All contentions were kept open, including the challenge to Section 16(2)(c), which could be raised in appropriate proceedings if necessary. The petitions were accordingly disposed of with no order as to costs.